Sub-Saharan countries like Ethiopia have an edge in low-tech manufacturing owing to abundant labour and natural resources, World Bank chief economist, Justin Lin tells The Africa Report in this exclusive interview.

Lin encourages Asian-inspired and market policies and suggests that the Horn of Africa country can look to light manufacturing to create jobs.

The Africa Report: What is Ethiopia's comparative advantage and how can it sharpen these attractive differences?

Justin Lin: Ethiopia, like other African countries, tends to have the lowest wages for skilled and unskilled workers in five light manufacturing industries – apparel, leather, agribusiness, metal products and wood products. Selective, targeted policies that are in line with a country's capabilities will be crucial in harnessing the benefits of comparative advantage.

What are the specific policy constraints that work against Ethiopia's agribusiness sector?

Despite the fact that Ethiopia has exceptional and varied climatic and soil conditions and the second-largest livestock population in Africa, the main constraint to its agribusiness subsector, for firms both large and small, is the high cost and low quality of agricultural inputs. Distortions are evident in the input and output markets, whether it is a shortage of high-yielding seeds due to problems in the government-run seed production and distribution systems or the fixed-price system in the dairy sector that removes incentives to scale up.

How does Ethiopia conform to the model of a successful high-growth country that follows neither the liberal nor state-planning approach exclusively?

Ethiopia has achieved high growth in recent years, but this growth remains unsustainable. It is structural transformation that is needed for this to truly be a success story. The approach recommended by my book New Structural Economics is to follow a practical Asian model where market forces are relied on for allocation of resources, and the state provides a guiding and facilitating role to the private sector.

the government can play an active role in attracting new movers

To what extent has this relied on leadership?

The approach I propose requires strong and smart leadership: The government should have a clear idea about the most promising manufacturing subsectors and then identify, prioritise and remove the most serious constraints in those subsectors. It should keep targeted policies selective, ­consistent with comparative advantage and in line with the country's resources and capacity. It should make use of conventional and some non-conventional policies such as 'plug-and-play' industrial zones. Start small and build up gradually. Success breeds success, as the rose farm example in Ethiopia illustrates. One person started the rose farm. Now 75 of them are producing some $200m exports and generating some 50,000 jobs.

Given the newness of certain of these industries in Ethiopia, such as floriculture, what role can government play to attract and incubate the first movers?

It will be essential to review government regulations and direct involvement to reform or eliminate official mechanisms that stifle incentives to invest in new types of enterprises (large-scale cultivation for example) or in efforts to upgrade existing operations with improved seeds or cattle. More broadly, easing access to land for good-practice investors, allowing land and cattle as collateral and establishing plug-and-play industrial parks such as the Eastern Industrial Zone are ways in which the government can play an active role in attracting new movers.

How would clustering help strengthen, for example, the textile industry in Ethiopia, as compared to the flower-export sector?

Ethiopia has comparative advantages in the production of both apparel and flowers, so it is not one sector versus the other but both. As to how clustering can help, clustering, as witnessed in South Korea, China and other parts of Asia, has absolute benefits that generate spillovers from one firm to another. Industrial agglomeration can lead to the exchange of ideas, reduction in capital investment required for each firm and the creation of social capital to expand. ●